US stocks mostly close lower as robust July jobs report stokes concerns about Fed rate hikes

US stocks ended mostly lower on Friday after a much stronger-than-expected July jobs reading reinforced expectations that the Federal Reserve will continue to hike interest rates aggressively in a bid to curb inflation.

How were stocks traded?
  • The Dow Jones Industrial Average DJIA,
    rose 76.65 points, or 0.2%, to close at 32,803.47.

  • The S&P 500 SPX,
    fell 6.75 points, or 0.2%, to end at 4,145.19.

  • The Nasdaq Composite COMP,
    lost 63.03 points or 0.5% to end at 12,657.55.

The Dow is down 0.1% this week, according to FactSet data, while the S&P 500 is up 0.4% and the tech-heavy Nasdaq is up 2.2%. The Nasdaq and S&P 500 each rose for a third straight week, while the Dow posted two straight weeks of gains, according to Dow Jones Market Data.

What drove the markets?

Stocks fell mostly on Friday after a surprisingly strong jobs report worried investors that the Federal Reserve may have to maintain aggressive rate hikes to cool the economy and tame inflation.

“That puts the Fed 75 basis points straight on the table in September,” Plante Moran Financial Advisors chief investment officer Jim Baird said in a phone interview on Friday, referring to market expectations for another big rate hike at the next central bank meeting. The jobs report “raises the stakes for the Fed and puts it in a position where it should be an easy call to continue tightening.”

Read: A red hot digit number in July has traders planning another jumbo rate hike from the Fed

The US economy added 528,000 jobs in July, the Labor Department reported Friday, far beating the consensus estimate of 258,000. The unemployment rate fell to 3.5%, its lowest level since the late 1960s, while the average hourly wage rose 15 cents, or 0.5%, to $32.27.

Announcements of layoffs by a number of high-profile companies had previously raised concerns that a robust labor market could be faltering.

Friday’s jobs data prompted a sharp rise in US Treasury yields and a lower open in equity markets as investors priced in the prospect of more gargantuan rate hikes by the Federal Reserve.

Some analysts argue that the strong payrolls data reinforces the notion that the economy can withstand aggressive monetary tightening by the Fed without slipping into recession. Meanwhile, a sharp fall in commodity prices, including oil, has helped support the notion that inflation may be nearing its peak.

Fed fund futures traders have priced in a 66.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday. Traders see a 33.5% chance of a 50 basis point move when the Fed next meets on September 20th and 21st.

“The economy is clearly in full swing as this morning’s job report showed growth across all sectors. The release should reassure the bears in the room who have been crying recession over the past few days,” said Peter Essele, head of portfolio management at the Commonwealth Financial Network.

“Strong job growth and moderating price inflation should help extend the current recovery rally into the end of the year,” he said in emailed comments.

Read: Stifel’s Barry Bannister raises the S&P 500 target to 4,400 for 2022, favoring “cyclical growth” stocks.

However, the monthly employment report is a lagging indicator. And investors and policymakers have plenty of data to sift through before the Fed’s September policy meeting. The next reading of the US consumer price index will be released next week.

“Friday’s extremely strong jobs data suggests many companies are not letting recession fears get in the way of hiring,” said Ryan Belanger, CEO and founder of Claro Advisors. “The jury is out on whether this robust hiring pace can continue, as many companies large and small have recently taken steps to slow hiring or even lay off existing employees.”

“We believe next Wednesday’s CPI data will weigh more heavily on Federal Reserve policy than Friday’s jobs report as fighting inflation is the Fed’s primary focus,” Belanger said in emailed comments.

Meanwhile, investors ended another busy week on corporate earnings. Investors have largely viewed the results as better than feared, providing another source of support for equities.

Do not miss: 5 Things We’ve Learned From Earnings Season So Far: How Much of an Impact is Inflation?

More than 80% of companies in the S&P 500 index are now reporting for the second-quarter earnings season, and so far earnings are up 8.6% on a mixed basis, according to Refinitiv.

“We’ve now eliminated most of the second quarter’s earnings,” Chris Iggo, chief investment officer at AXA Investment Managers, said by phone on Friday. “There were no real disasters.”

On the global front, geopolitical tensions remain an undercurrent for markets. China on Thursday carried out “precision missile strikes” in waters off Taiwan’s coasts as part of military exercises that have pushed tensions in the region to their highest levels in decades following a visit to the island by US House Speaker Nancy Pelosi.

Hear from Carl Icahn on the Festival of the best new ideas in the money on September 21st and 22nd in New York. The legendary trader will share his take on this year’s wild market ride.

Which companies were the focus?
  • Tesla Inc.
    Shareholders on Thursday approved a proposal that is expected to result in a 3-for-1 stock split and sided with the company on most of the proposals put to the vote. Shares fell 6.6%.

  • Meme stock favorite AMC Entertainment Holdings Inc.
    announced a special dividend in the form of “Ape” preferred stock late Thursday. AMC shares rose 18.9%.

  • shares of Twilio Inc. TWO plunged 13.5% after the software company’s outlook fell short of Wall Street’s expectations after taking a hit in the previous quarter.

  • DoorDash Inc.
    Shares fell 1.3% after the company late Thursday reported sustained growth in the second quarter and said its grocery delivery business remains healthy despite economic uncertainty, though the loss was worse than Wall Street had expected.

  • shares of Cloudfare Inc.
    Soared 27.1% after the cybersecurity firm released results late Thursday that beat Wall Street expectations and raised its revenue forecast for the year.

  • Beyond Meat Inc.
    Shares rose 21.9% after UBS raised its price target. Shares were down in early trade after the plant-based meat substitute maker posted a larger-than-expected net loss and lower-than-expected earnings Thursday afternoon while announcing layoffs.

  • block inc
    Shares fell 2.2% after the payments technology company posted a loss late Thursday and forecast July volume growth for the Square seller business would be lower year-over-year than expected in the second quarter.

  • Carvana Co.
    Shares soared 40.1% even though the used-car dealership’s second-quarter earnings missed expectations and posted a bigger loss than analysts had expected. The company reported sales volume of 117,564 in the second quarter, up from 105,185 in the previous quarter and 107,815 a year ago. Shares are down nearly 80% this year.

How have other assets fared?
  • The yield of the 10-year Treasury note TMUBMUSD10Y,
    rose 16.4 basis points to 2.838%. Yields and debt prices move in opposite directions.

  • The ICE US Dollar Index DXY,
    a measure of the currency against a basket of six major peers, rose 0.8%.

  • bitcoin BTCUSD,
    was traded up 1.7% to $22,888.

  • For oil futures CL.1,
    West Texas Intermediate Crude Oil for September Delivery CLU22,
    rose 0.5% to $89.01 a barrel. The US benchmark slipped 9.7% this week.

  • Gold Futures GC00,
    ended lower on Friday, with gold due for December GCZ22 delivery,
    fell 0.9% to end at $1,791.20 an ounce. Based on the most active contract, the yellow metal is up 0.5% on the week, according to Dow Jones Market Data.

  • For European stocks of the Stoxx Europe 600 SXXP,
    closed 0.8% lower on Friday on a weekly loss of 0.6%. London’s FTSE 100 UKX,
    down 0.1% on Friday, cutting its small weekly gain to 0.2%.

  • The Shanghai Composite SHCOMP,
    ended up 1.2% on Friday but remained down 0.8% for the week. The Hang Seng Index HSI,
    in Hong Kong rose 0.1% on Friday, bringing its weekly rise to 0.2%. Japan’s Nikkei 225 NIK,
    up 0.9% on Friday and up 1.3% on the week.

The Associated Press contributed to this article. US stocks mostly close lower as robust July jobs report stokes concerns about Fed rate hikes

Brian Lowry

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